Shoot first and ask questions later - earnings season ramps up

SUMMARY

Reporting season has shifted into gear, and while the broader market has held up reasonably well, the reaction beneath the surface has been considerably more violent.

Jennings says this is a market where companies simply cannot afford to disappoint. The banks have weighed on sentiment, while crowded positions and elevated expectations have contributed to some dramatic moves elsewhere. The result is a familiar reporting season dynamic: investors are shooting first and asking questions later.

CAR Group produced record revenue and profit, with its international operations doing much of the heavy lifting. The result helped ease some concerns about AI disruption and triggered a sharp initial rally, although Jennings believes it is still far too early to declare whether AI is a either a threat or an opportunity for businesses such as CAR and SEEK.

Life360, meanwhile, demonstrated the danger of lofty expectations. Jennings points to uncertainty around forward guidance and weaker-than-hoped-for advertising monetisation as reasons the market was justified in marking the stock down.

SGH was another company that failed to inspire. Boral remains a strong performer, but weaker WesTrac volumes and competitive pressures at Coates weighed on the result. Jennings remains positive on the quality of the business and management, but believes it may be one to watch rather than chase for now.

For Computershare, the numbers weren’t necessarily bad. The problem was that they did little to excite investors. Higher interest rates continue to provide a tailwind, although Jennings stresses there is more to the business than simply earning interest on client balances.

He is less enthusiastic about SEEK, arguing its move beyond its core employment marketplace into the growth fund has proved a distraction. Combine that with economic sensitivity, AI disruption and a subdued outlook, and Jennings believes the stock could remain “in the doghouse for a little while”.

There was more optimism around ASX. Rising trading volumes are supportive, while new leadership and the potential for a stronger IPO pipeline provide reasons for optimism despite ongoing technology costs and the lingering CHESS replacement saga.

Origin Energy also earned a positive assessment following what Jennings described as a solid result. Its energy markets business remains important, while the Octopus Energy stake continues to provide another potential source of growth, albeit within a complicated collection of businesses.

Telstra remains a different proposition. Its buyback and improved dividend provide support for income investors, but Jennings sees limited excitement in a familiar strategy built around mobile, cost reductions and capital returns. For investors seeking growth, he believes there may be better opportunities elsewhere.

And the company that most caught his eye this week? Bravura Solutions. Jennings highlighted its EBITDA result, cash position and $50 million buyback after a strong run in the shares. He isn’t prepared to chase it near current levels, but says a pullback towards $3 would make him “very much more interested”.